Forecast 2020 income statement and balance sheet using the percent of sales method and the following assumptions: 

(1) sales in 2020 will be 12.5 million; 

(2) tax rate keeps the same; 

(3) each item that changes with sales will be the 2 year average percentage of sales; 

(4) fixed asset will increase $1,000,000 with a 10 year straight line depreciation schedule with 0 salvage value;

(5) the common stock dividends will be $202,000; 

(6) interest rate on short-term and long-term debt will be 9%; 

(7) Cash, short-term investment will be the same as 2019; 

(8) COGS, Selling G&A expenses, A/R, inventory, A/P, Accruals will change in proportion to sales; 

(9) Notes payable and long-term debt will keep the same; and if there is borrowing need, the company will borrow from long-term debt; 

(10) the company will not issue stocks in 2020.

Questions:

a) What is the additional funds needed in 2020? Is this a surplus or deficit or balanced? (Without iteration, or borrowing happens at last day of the year)

b) Assume that the AFN will be absorbed by long-term debt, set up an iterative worksheet to find total accumulated AFN (borrowing happens during the year)

c) Why accumulated AFN increases in part b)? Please explain the phenomenon.

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